The Securities and Exchange Commission announced charges and financial penalties against Carl C. Icahn and his publicly traded company, Icahn Enterprises L.P. (IEP), InvestmentNews reports.
The SEC said it took the action against Icahn for failing to disclose information relating to his pledges of IEP securities as collateral to secure personal margin loans worth billions of dollars under agreements with various lenders. IEP and Icahn agreed to pay $1.5 million and $500,000 in civil penalties, respectively, to settle the charges. Icahn is IEP’s controlling shareholder and Chairman of the board of directors of IEP’s general partner.
The case dates from at least December 31, 2018, through the present. According to the SEC’s orders, Icahn pledged about 51 to 82 percent of IEP’s outstanding securities as collateral to secure the personal margin loans. Despite his various margin loan agreements and amendments, the SEC said IEP failed to disclose Icahn’s pledges of IEP securities as required in its Form 10K until February 25, 2022.
The charges state that Icahn also failed to file amendments to Schedule 13D describing his personal margin loan agreements and amendments, which dated back to at least 2005, and failed to attach required guaranty agreements. Icahn’s failure to file the required amendments to Schedule 13D continued until at least July 9, 2023, the commission said.
“The federal securities laws imposed independent disclosure obligations on both Icahn and IEP. These disclosures would have revealed that Icahn pledged over half of IEP’s outstanding shares at any given time,” said Osman Nawaz, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit (CFIU). “Due to both disclosure failures, existing and prospective investors were deprived of required information.”
IEP was found to have violated Section 13(a) of the Securities Exchange Act of 1934 and Rule 13a-1 thereunder and Icahn violated certain beneficial ownership reporting provisions of the Exchange Act. Icahn and IEP did not admit or deny the findings but agreed to cease and desist from future violations and to pay the civil penalties.
The SEC launched its investigation following a report last year by short selling firm Hindenburg Research which claimed that Icahn Enterprises has been using inflated asset valuations. The report also pointed to “ponzi-like economic structures” at the company, alleging that Icahn has used money from new investors to pay out dividends to old ones.
In comments to InvestmentNews, Icahn and a lawyer representing the firm acknowledged the SEC’s findings and denied Hindenburg’s conclusions.
“After Hindenburg issued a false report to make money on its short position at the expense of ordinary investors, the government investigation that followed has resulted in this settlement which makes no claim IEP or I inflated NAV or engaged in a ‘Ponzi-like’ structure,” Icahn said in a statement. “Hindenburg’s modus operandi, which is to publish scurrilous and unsupported allegations, did damage to IEP and its investors. We are glad to put this matter behind us and will continue to focus on operating the business for the benefit of unit holders.”
Jonathan Streeter, outside counsel at Dechert, said that the company and Icahn cooperated with the SEC.
“In short, the government found absolutely no fraud and did not find any inflation of IEP’s [net asset value] or impropriety in its dividends. Instead, IEP is settling an unrelated disclosure violation on issues that were reviewed by outside advisors at the time in question,” Streeter said in a statement. “On that, IEP corrected the disclosure violation in February 2022, more than a year before the Hindenburg report and the start of the government investigation. When IEP made that correction, its unit price barely moved, and the market did not react.”
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